Minimum Energy Efficiency Standards (MEES) for Landlords
In 2016, The Energy Efficiency (Private Rented Property)(England and Wales) Regulations 2015 established the new Minimum Energy Efficiency Standards (MEES) in the residential and commercial private rented sector.
This has been introduced by government to improve the quality of private rented buildings and reduce the overall CO2 emissions in accordance with the UKs targets for decarbonisation. From 1st April 2018, phase one of the MEES regulations came into force which has big implications for landlords of private rented property. As a result of this, it is now deemed unlawful to let properties with an Energy Performance Certificate (EPC) rating below an 'E' rating.
MHCLG previously highlighted the scale of those affected by MEES, with 20%-25% of residential and commercial properties in England and Wales hitting or falling below the minimum standards. There is also a chance that the standard could be raised further to a D rating by 2025 and a C rating by 2030.
Landlords and their agents should act by commissioning an up-to-date Energy Performance Certificate which will identify the current rating (which may have changed over time), and recommend opportunities for improvement.
What does this mean for Domestic/Residential Landlords?
From the 1st April 2018 all private rented properties must achieve an energy efficiency rating of at least an E on their EPC, to meet the minimum standards. This will initially only apply upon the granting of a new tenancy to a new or existing tenant.
Landlords will need to take action to avoid any non-compliance penalties (estimated at £5000) and protect the value of their assets. If a property does not meet the minimum standards, it will be deemed unlawful for landlords to let or market their property.
What does this mean for Non-Domestic/Commercial Landlords?
From the 1st April 2018, it is now unlawful to grant a new lease for properties in England and Wales which do not meet the Minimum Energy Effciency Standards (MEES). The regulation also applies to lease renewals.
It is important to act quickly to ensure your property complies as the valuations of properties not meeting the standards are now likely to be affected, as their marketability will be diminished. Moreover, financial penalties for non compliance are linked to the rateable value of the propert, but could be as much as £150,000
Following an amendment to MEES regulations, from 1st April 2019, the 'no cost to the landlord' provision will no longer be available. As a result of this landlords will not be able to register a ‘no cost to landlord’ exemption, which was previously registered by those who were unable to make improvements to their property without incurring a cost. This means that domestic landlords must use their own funding to cover the cost of improving their property to EPC band E. This requirement is subject to a spending cap of £3,500 (inclusive of VAT) for each property and is only necessary when third party funding is unavailable.
Those who have already registered for the ‘no cost to landlord’ exemption prior to regulation changes (1st April 2019), will no longer be exempt for five years, and will now need to make the necessary improvements to their property to ensure it meets EPC band E (or as close as possible) by April 2020.
About the cost/spending cap
The £3,500 (incl VAT) cost/spending cap applies to the overall cost of improving the property and is not a cap applied to individual measures. Landlords only need to fund what they need, to improve the property to Band E. The spending cap is not a requirement and analysis shows that the average cost of improving a property from EPC band F or G to band E, would be much less then this.
In cases where a landlord is unable to improve their property to band E within the £3,500 cap, then they should install all measures which can be installed up to the £3,500 cap, and then register an exemption on the basis that ‘all relevant improvements have been installed and the property remains below an E’
Combined third party and self-funding
Landlords may be able to secure some third-party funding, but it might not be enough to improve their property to EPC band E. In this case regulations stipulate that landlords must top up this third party funding with funding from their own pockets, provided that the combined value is less than the £3,500 (incl VAT). An example of this is provided below:
Property requiring £3.5k of investment to reach EPC E
|Third party funding available||Landlord contribution required|
If the combined funding is insufficient to improve the property to EPC band E then the landlord should install all measures which can be installed up to the value of £3,500, and then register an exemption on the basis that 'all relevant improvements have been installed and the property remains below an E'.
Further information regarding this recent amendment can be found within the Domestic MEES guidance document supplied by the Department for Business, Energy & Industrial Strategy (BEIS).
Landlords can register an exemption in order to remain compliant with MEES regulation, despite their property not meeting the standards. All exemptions last 5 years except the exemption: recently becoming a landlord, which lasts for only 6 months. Unlike an EPC that stays with a property, an exemption does not. It is linked to the landlord who registered the exemption, so if a new landlord comes into the property, they will need to re-register the exemption.
All exemptions for both Domestic and Non-Domestic properties can be registered at the following website: https://prsregister.beis.gov.uk
The key dates provided below underline when the regulations will be enforced, with the regulation scope expanding over a five year period from 2018 to 2023.
1st April 2018
it is now unlawful to grant new leases for residential or commercial property with an EPC rating below an 'E'
1st April 2019
Removal of the 'no upfront cost' provision which means that should third party funding be unavailable, landlords will need to self fund improvements.
1st April 2020
MEES regulation will extend to ALL residential privately rented property which are required to have an EPC.
1st April 2023
MEES regulation will be extended to include ALL existing commercial leases.
The Deregulation Act 2015 protects tenants against unfair eviction where they have raised a legitimate complaint about the condition of their home. This includes issues about its energy efficiency.
Legislation will also affect a landlords right to evict a tenant who has a legitimate complaint concerning the buildings energy efficiency compliance. Shorthold tenancies granted on or after 1st October 2015 are subject to new rules brought about by Section 33 of the Deregulation Act.
The rules are designed to prevent ‘retaliatory eviction’ practices and effectively make it more difficult for landlords to serve
a section 21 eviction notice to tenants where complaints have been raised about the condition of the property. This would include complaints about its energy efficiency.
What does this mean for Landlords?
Before serving a section 21 notice you must demonstrate that you have complied with the relevant legal obligations concerning:
• The condition of the dwelling
• The health and safety of occupiers in the dwelling
• The energy performance of the dwelling
• Gas certification
• All the above information has been provided to the tenants.
As such, if you have not provided your tenant with an EPC, you will risk losing the right to issue an eviction notice.